Export growth remained robust in June’18 at 17.6% compare to 0.7% March’18. However, it is still lagging behind as compared to growth in Imports.

India’s forex reserves declined to US$ 405bn in the first week of July 2018 on the back of sustained FII outflows.

Negatives:

India’s trade deficit rose to a 61-month high of US$ 16.6bn in Jun’18 vs US$ 13.7 in March’18.

Export growth offset by a much higher increase in oil (56.6%) and non-oil non-gold imports (12.5%).

Higher trade deficit along with FPI outflows would put pressure on CAD and INR. INR has depreciated by 7.7% in CYTD18.

Retail inflation shot up to 5-month high of 5% in Jun’18 led by persistent edging up of core inflation (near its 4-year high of 6.5%).

Recently, government announced higher MSP which will push inflation upward 5%

What can we expect?

Considering inflation to remain in higher trajectory, RBI may raise rates by another 25 bps in Aug’18. From this perspective, investment in debt products still looks attractive. Equity markets performance will be more guided by actual growth in earnings and their relative valuations.